Apollo Global Still ‘In Harvesting Mode’

By Brendan Conway

A year ago, Leon Black, the chairman and CEO of Apollo Global Management (APO), said the private-equity operator was “selling everything that’s not nailed down.”

This morning, UBS analysts Brennan Hawken and David Eads write that the firm “remains in harvesting mode”:

ZUMAPRESS.com

A year ago, “selling everything that’s not nailed down.”

APO remains in harvesting mode in its PE funds due to the healthy market environment, generating considerable distributions for shareholders. We expect private equity realizations will remain healthy for some time, while increased management fees and realized carry from credit funds should help support a healthy distribution going forward. While identifying compelling investment opportunities has been difficult recently, we expect APO will remain opportunistic, and we believe the firm’s Aviva acquisition is an extremely attractive source of permanent capital.

After the stock’s 105% surge in 2013, what more is left for investors? Hawken and Eads estimate, among other things, a 2014 yield north of 8%:

Even though APO’s 2013 pay-out of nearly $4 per share is unlikely to be sustained, we came away increasingly confident that the firm should continue to pay out a highly attractive distribution in a more normalized environment. We expect APO can deliver significant growth in fee-based revenues and realizations from credit carry funds, partially offsetting a decline in private equity realizations. We see our 2014E $2.60 distribution as closer to normalized, resulting in a very attractive yield of over 8%.

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Chris Dieterich has covered the U.S. stock market for The Wall Street Journal and Dow Jones Newswires. He is a graduate of Regis University and the Missouri School of Journalism.